Name: JEAN ROSE T.

BUSTAMANTE BSMA-3

Let’s Check

Activity 1. Accounting for Home Office and Branch Transactions.

On January 1, 2020, the Bread Company opened a new branch in a neighboring city. A
summary of transactions for the home office and the branch for 2020 and the balance sheet for
the home office on January 1 are as follows:

The home office transactions:

a. Transfer of cash to branch, P42,500

b. Transfer of merchandise to branch (billed at cost), P50,200.

c. Sales on account, P105,000.

d. Purchases on account, PI122,500

e. Collections on account, P113,600

f. Payments on account, P124,000

g. Expenses paid, P26,600

h. Cash received from branch, P53,400

i. Dividends paid, P 10,000.

j. Adjusting data on December 31: depreciation for year, P1,180; merchandise inventory,
P48,500; prepaid expenses, P2,050 and accrued expenses, P1,350.

Branch transactions:

a. Cash received from home office, P42,500

b. Merchandise received from home office, P50,200.

c. Sales on account, P66,000.

d. Purchases on account, P22,500

e. Cash collections on account deposited to the credit of the home office, P53,400.

f. Payments on account, P12,250.

g. Purchase of furniture and fixtures for cash, P8,000.

 h. Expenses paid, P18,000.

i. Adjusting data on December 31: depreciation, P650; merchandise inventory, P23.500;

prepaid expenses, P750 and accrued expenses, P300.

A balance sheet on December 31, showed the following balances:

Required:
1. Prepare journal entries to record the foregoing transactions for (a) the branch and (b) the
home office

a. Investment in Branch 42,500

Cash 42,500
To record the transfer of cash to branch

b. Investment in Branch 50,200

Shipments to Branch 50,200
To record the transfer of merchandise to
branch

c. Accounts Receivable 105,000

Sales 105,000
To record the sales of account

d. Purchases 122,500
Accounts Payable 122,500
To record the purchases on account

e. Cash 113,600
Accounts Receivable 113,600
To record the collections on account
f. Accounts Payable 124,000
Cash 124,000
To record the payments on account

g. Expenses 26,600
Cash 26,600
To record the expenses paid

Furniture and Fixtures - Branch 8,000

Investment in Branch 8,000
To record the acquisition of Furniture and Fixtures from Branch

h. Cash 53,400
Investment in Branch 53,400
To record the cash received from the branch

i. Retained Earnings 10,000

Cash 10,000
To record the dividends paid

Branch:
a. Cash 42,500
Home Office 42,500
To record the cash received from home office

b. Shipments from Home Office 50,200

Home Office 50,200
To record the merchandise received from home office

c. Accounts Receivable 66,000

Sales 66,000
To record the sales on account

d. Purchases 22,500
Accounts Payable 22,500
To record the purchases on account

e. Cash 53,400
Accounts Receivable 53,400
To record the collections on account
 Home Office 53,400
Cash 53,400
To record the cash deposited to home office

f. Accounts Payable 12,250

Cash 12,250
To record the payments on account

g. Home Office 8,000

Cash 8,000
To record the acquisition of Furniture and Fixtures

h. Expenses 18,000
Cash 18,000
To record the expenses paid

2. Prepare individual statements for the branch and for the home office
Bread Company - Branch
Income Statement
For the Year-ended December 31, 2020

Sales ₱ 66,000
Less: Cost of Sales
Merchandise Inventory, beg ₱ -
Add: Purchases ₱ 22,500
Shipments from Home
Office ₱ 50,200
Merchandise Available for Sale ₱ 72,700
Less: Merchandise Inventory, end ₱ 23,500 ₱ 49,200
Gross Profit ₱ 16,800
Less: Operating Expenses
Expenses ₱ 17,550
Depreciation Expense ₱ 650 ₱ 18,200
Net Income - Branch -₱ 1,400
 Bread Company - Branch
Statement of Financial Position
For the Year-ended December 31, 2020

Assets
Current Assets
Cash ₱ 4,250
Accounts Receivable ₱ 12,600
Merchandise Inventory,
12/31/20 ₱ 23,500
Prepaid Expenses ₱ 750
Total Current
Assets ₱ 41,100
Total Assets ₱ 41,100
Liabilities and Equity
Liabilities
Accrued Expenses ₱ 300
Accounts Payable ₱ 10,250
Total
Liabilities ₱ 10,550
Equity
Home Office ₱ 30,550
Total Equity ₱ 30,550
Total Liabilities and Equity ₱ 41,100

Bread Company
Income Statement
For the Year-ended December 31, 2020

Sales ₱ 105,000
Less: Cost of Sales
Merchandise Inventory, beg ₱ 40,120
Add: Purchases ₱ 122,500
Merchandise Available for
Sale ₱ 162,620
Less: Shipments to Branch ₱ 50,200
Merchandise
Inventory, end ₱ 48,500 ₱ 63,920
Gross Profit ₱ 41,080
Less: Operating Expenses
Expenses ₱ 26,450
Depreciation Expense ₱ 1,180 ₱ 27,630
Net Income from operations ₱ 13,450
Less: Net Loss from Branch ₱ 1,400
Net Income ₱ 12,050

Bread Company
Statement of Financial Position
For the Year-ended December 31, 2020

Assets
Current Assets
Cash ₱ 23,200
Accounts Receivable ₱ 19,050
Merchandise Inventory, 12/31/20 ₱ 48,500
Prepaid Expense ₱ 2,050
Total Current Assets ₱ 92,800
Non-Current Assets
Furniture and Fixtures ₱ 20,000
Less: Accumulated
Depreciation ₱ 5,580 ₱ 14,420
Furniture and Fixtures -
Branch ₱ 8,000
Less: Accumulated
Depreciation ₱ 650 ₱ 7,350
Investment in Branch ₱ 30,550
Total Non-Current Assets ₱ 52,320
Total Assets ₱ 145,120
Liabilities and Shareholders' Equity
Liabilities
Accrued Expenses ₱ 1,350
Accounts Payable ₱ 21,300
Total Liabilities ₱ 22,650
Shareholders' Equity
Common Stock, P20 par ₱ 50,000
Retained Earnings
Beginning ₱ 70,420
Less: Dividends paid ₱ 10,000
Balance ₱ 60,420
Add: Net Income ₱ 12,050 ₱ 72,470
Total Shareholders' Equity ₱ 122,470
Total Liabilities and Shareholders' Equity ₱ 145,120

3. Prepare combined statements for the branch and the home office
 Bread Company
Combined Income Statement
For the Year-ended December 31, 2020

Sales ₱ 171,000
Less: Cost of Sales
Merchandise Inventory,
beg ₱ 40,120
Add: Purchases ₱ 145,000
Merchandise Available
for Sale ₱ 185,120
Less: Merchandise
Inventory, end ₱ 72,000 ₱ 113,120
Gross Profit ₱ 57,880
Less: Operating Expenses
Expenses ₱ 44,000
Depreciation Expense ₱ 1,830 ₱ 45,830
Net Income ₱ 12,050

Bread Company
Combined Statement of Financial Position
For the Year-ended December 31, 2020

Assets
Current Assets
Cash ₱ 27,450
Accounts Receivable ₱ 31,650
Merchandise Inventory, 12/31/20 ₱ 72,000
Prepaid Expenses ₱ 2,800
Total Current Assets ₱ 133,900
Non-Current Assets
Furniture and Fixtures ₱ 28,000
Less: Accumulated Depreciation ₱ 6,230
Total Non-Current Assets ₱ 21,770
Total Assets ₱ 155,670
Liabilities and Shareholders' Equity
 Liabilities
Accrued Expenses ₱ 1,650
Accounts Payable ₱ 31,550
Total Liabilities ₱ 33,200
Equity
Common Stock, P20 par ₱ 50,000
Retained Earnings
Beginning ₱ 70,420
Less: Dividends paid ₱ 10,000
Balance ₱ 60,420
Add: Net Income ₱ 12,050 ₱ 72,470
Total Shareholders' Equity ₱ 122,470
Total Liabilities and Shareholders' Equity ₱ 155,670

4. Prepare the journal entries to adjust and close the books at the end of the period for (a)
the branch and (b) the home office
Adjusting Entries:
Home Office
j. Depreciation Expense 1,180
Prepaid Expenses 250
Accumulated Depreciation 1,180
Expenses 150
Accrued Expenses 100
To record the year-end adjustments

k. Investment in Branch 650

Accumulated Depreciation - Furn. And Fix. - Branch 650
To record the depreciation of asset from Branch
Branch
i. Depreciation Expense 650
Prepaid Expenses 750
Home Office 650
Accrued Expenses 300
Expenses 450
To record the year-end adjustments

Closing Entries:
Home Office
l. Sales 105,000
Shipments to Branch 50,200
Merchandise Inventory, end 48,500
Merchandise Inventory, beg 40,120
Purchases 122,500
Expenses 26,450
Depreciation Expense 1,180
Income Summary 13,450
To close the nominal accounts in the income summary

m. Income Summary - Branch 1,400

Investment in Branch 1,400
To record the net loss incurred by the branch

n. Income Summary
1,400
Income Summary - Branch
1,400
To close the net loss incurred by the branch

o. Income Summary 12,050

Retained Earnings 12,050
To close the net income from operations to retained earnings

Branch:
j. Sales 66,000
Merchandise Inventory, end 23,500
Income Summary - Branch 1,400
Purchases 22,500
Shipments from Home Office 50,200
Expenses 17,550
Depreciation Expense 650
To close the nominal accounts in the income summary

k. Home Office 1,400

Income Summary - Branch 1,400
To record the net loss incurred

Elimination Entries for Combined Financial Statements

a. Home Office 23,200
Investment 23,200
To record the elimination of home office account
against the investment in branch account

b. Shipments to Branch 50,200

Shipments from Home Office 50,200
To record the elimination of shipments to branch
account against shipments from Home office
account